As the impact of Covid-19 continues to be felt in the financial markets, we’ve taken a deep-dive into the charts to see how it compares to other global health crises and major financial events that have occurred throughout recent history.
At the very beginning of 2020, the Covid-19 virus rapidly extended its reach in just a few short months. At the time of writing in the second week of April, there are close to 1.5 million known cases of Covid-19, resulting in over 80,000 deaths, with approximately 300,000 recoveries.
For access to the latest information on the numbers, there are a few useful graphics that have been tracking the growing situation, a couple of which are:
• COVID-19 Global Cases by the Centre for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU) – powered by ArcGIS [HERE]
• Covid Visulizer (Worldometer) [HERE]
Covid-19 (Jan 2020 to present)
The Covid-19 strain believed to originate from a bat in a Chinese ‘wet market’ in Wuhan has taken a very short time to spread across the world and have an impact on the global economy.
In February, the Dow Jones was trading around 29,600, and in just a few short months has dropped to 18,200 by March, a drop of c. 38%. The S&P has shown a similar impact - at the time of writing the index has dropped from a peak of 3,400 and at its lowest reached c. 2,200, a 35% reduction, again in only a few months.
The final impact of Covid-19 is still to be determined, it’s practically shut down the entire world and has been having a devastating impact not just on the economy but also businesses and livelihoods. With no definitive end in sight, it looks set to continue to have an impact for months if not years to come.
Ebola (2014 – 2016)
On March 2014, the World Health Organization (WHO) reported cases of Ebola Virus Disease (EVD) in the forested rural region of South Eastern Guinea. It is also believed to have been an infection from bats.
The identification of these early cases marked the beginning of the West Africa Ebola epidemic. If this epidemic had an impact on the markets it wasn’t shown within the Dow and S&P, both of which saw the continuation of their upward trend within this period. The S&P raised c. 9% from March 2014 to the start of 2016, however reached a peak of 14% in May 2015. With the Dow rising c. 6% (peaking at 12%) within the same period.
Global Financial Crisis (2007-2009)
The global financial crisis in 2007/2008 has been well documented in newspapers, books and film. In this case, the sub-prime mortgage market collapsed and developed into a banking crisis when Lehman Brothers went under in September 2008. Reviewing the devastating impact it had on the markets, the Dow Jones lost around 55% of its value from peak to trough, going from c. 14,200 in 2007 to c. 6,380 in 2009 in under two years.
The S&P also saw massive losses with a c. 57% drop, going from c. 1,580 in 2007 to c. 665 in 2009.
SARS, which is a similar strain to Covid-19, originated in China in 2002 and quickly spread into other Asian countries. The SARS pandemic was eventually brought under control in July 2003.
Within this period between 2002 and 2004, it seemed the SARS virus had little impact on the Dow & S&P. Although the market was coming out of the end of the dot com bubble in 2002 and throughout 2003, the Dow was making new highs, with a similar case seen in the S&P.
It might have had little effect on the US stock market as it was mainly concentrated in Asia, primarily China. The Japanese Nikkei 225 index in this time did fall by the end of 2002 and continued downwards in the start of 2003, however by the time 2004 rolled around, it was also making new highs.
The SARS outbreak ended mid-2003 (c. 8 months after first discovery), with the WHO estimating that it infected 8,098 people in that period and resulted in 774 deaths. In comparison, the Covid-19 virus is around three months since first discovery and has already infected over 1.4 million people (8th April 2020).
Dot Com Bubble (2000-2002)
The dot com bubble was caused by the excessive speculation of internet-based companies on the stock market. In some cases companies would add .com to their name and see their value increase dramatically. Ultimately, at its peak in August 2000, it led to the stock market crash between 2000 & 2002.
In that time the Dow Jones Industrial Average went from c. 11,700 in 2000 to c. 7,200 in 2002. A c. 38% drop.
Similarly the S&P 500 went from c. 1,550 in 2000 to c. 770 in 2002. Which is a c. 50% drop.
Other infectious diseases outbreaks:
Avian Flu – June 2006
• Dow Jones: 2% in 3 months / 9.6% in 6 months / 20% in 1 year.
• S&P: 2.6% in 2 months / 10% in 6 months / 18% in a year, near the peak before the financial crash.
Swine Flu – April 2009
• Dow Jones: 3.5% in 3 months / c. 19% in 6 months / 34.7% in 12 months.
• S&P: 16% in the first 3 months (March 2009 happened to be the low following the financial crisis hit, markets had started to recover.) And within a year the markets had risen c. 50%.
MERS – 2012-2013
• Dow Jones: -3.2% in 3 months / 4.5% in 6 months / 12.5% in 12 months.
• S&P: 0.7% in 3 months / 8% in 6 months / 20% in 12 months.
Zika – Jan 2016
• Dow Jones: 1.6% in 3 months / 2.9% in 6 months / 14% in 12 months.
• S&P: 6.5% in 3 months / 8.4% in 6 months / 17.8% in 12 months.
Viewing all the selected outbreaks and financial crashes side by side, with the exception of Covid-19, it seemed the outbreaks did little to deter the markets and only the dot com bubble and the financial crisis saw red across all measured time frames, across all three selected indexes.
However, it is prudent to remember that these weren’t the only factors impacting the global financial markets at those points in time. According to a Fidelity report in 2006, it was stated “we cannot draw any fixed conclusions about the effects of pandemics upon stock-market performance. Equity markets react unpredictably to the unknown; nevertheless, such events should not be examined in isolation, but viewed in common with other prevailing market conditions.”
Interestingly however, the fall of the markets and the speed at which they fall when there is a global event seems to be increasing. When comparing the dot com bubble and the financial crash to the Covid-19 impact, the virus took >30% off the S&P in just 3 months. Something that took the global financial crisis a year to reach and just over a year for the dot com crash.
Covid-19 is definitely the one infectious disease that has had the highest market impact in recent years and can be considered comparable to the two major financial crashes’ in the past two decades. This pandemic is far from over and we’ve seen the impact it has had in only a few short months.
MSCI World Index
To view the impacts of the events selected on another index, we’ve taken data from the MSCI World Index and overlaid the events to take a look at how they affected a wider market than just the DJI & S&P. The MSCI World Index is a broad global equity index that represents large and mid-cap equity performance across all 23 developed markets countries. It covers approximately 85% of the free float-adjusted market capitalization in each country.
• Dow Jones Industrial Average Index (TradingView charts)
• S&P 500 (TradingView charts)
• MSCI World Index (MSCI.com)